Business Overview and History
AtlasClear Holdings, Inc. (ATCH) is a Tampa, Florida-based fintech company that aims to build a cutting-edge technology-enabled financial services firm. The company's goal is to create a more efficient platform for trading, clearing, settlement, and banking, with a focus on evolving and innovative financial products targeting small and middle-market financial services firms.
AtlasClear Holdings was originally formed as Calculator New Pubco, Inc., a blank check company incorporated in Delaware on October 1, 2020. The company's initial purpose was to enter into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization, or other similar business combination with one or more businesses or entities.
On February 9, 2024, Calculator New Pubco, Inc. consummated the previously announced transactions pursuant to the Business Combination Agreement dated November 16, 2022. As a result, the company changed its name to AtlasClear Holdings, Inc. and acquired certain assets from Atlas FinTech Holdings Corp. and Atlas Financial Technologies Corp., as well as completed the acquisition of broker-dealer Wilson-Davis Co., Inc.
Prior to the closing of the business combination, AtlasClear and AtlasClear Holdings entered into two amendments to the Broker-Dealer Acquisition Agreement with Wilson-Davis and the then-owners of Wilson-Davis. These amendments reduced the total purchase price payable under the agreement and restructured the consideration to include convertible promissory notes issued by AtlasClear to the Wilson-Davis sellers.
On February 16, 2024, AtlasClear entered into a Source Code Purchase Agreement and Master Services Agreement with Pacsquare Technologies, LLC, pursuant to which AtlasClear acquired a proprietary trading platform with clearing and settlement capabilities that Pacsquare will develop and implement.
In connection with the closing of the business combination, AtlasClear Holdings and Quantum FinTech Acquisition Corporation also entered into a securities purchase agreement with Funicular Funds, LP, pursuant to which AtlasClear Holdings sold and issued a secured convertible promissory note in the principal amount of $6 million. The proceeds from this note financing were used to pay a portion of the purchase price paid at closing to the Wilson-Davis sellers.
Wilson-Davis, which generates the majority of AtlasClear Holdings' revenue, derives its income principally from commissions charged on the liquidation of restricted and control microcap securities, vetting and clearing service fees charged to introducing brokers, and other financial service fees. The company is engaged primarily in the over-the-counter (OTC) markets, executing transactions in microcap securities and exchange-traded securities.
Financial Performance and Ratios
For the fiscal year ended June 30, 2024, AtlasClear Holdings reported annual revenue of $22.05 million, an increase of 36.2% compared to the prior year. Net income for the same period was $4.29 million, a significant improvement from the $1.48 million in net income reported in the prior fiscal year.
The company's gross profit margin for the fiscal year 2024 was 64.4%, indicating strong profitability. Additionally, AtlasClear Holdings' current ratio stood at 0.80, suggesting adequate liquidity to meet short-term obligations, while the debt-to-equity ratio of -0.33 demonstrates a conservative capital structure.
In terms of cash flow, the company generated $3.21 million in operating cash flow and $1.64 million in free cash flow for the fiscal year 2024. The positive cash flow generation highlights AtlasClear Holdings' ability to fund its operations and investments from internal sources.
For the most recent quarter ended December 31, 2024, AtlasClear Holdings reported revenue of $2.75 million and a net loss of $420,000. The decrease in net income was primarily due to increased operating expenses related to the acquisition of Wilson-Davis.
Financials
AtlasClear Holdings' financial performance for the fiscal year 2024 showed strong growth and improved profitability. The company's revenue increase of 36.2% year-over-year demonstrates its ability to expand its market presence and attract new customers. The significant improvement in net income, from $1.48 million to $4.29 million, reflects the company's successful efforts in managing costs and improving operational efficiency.
The gross profit margin of 64.4% indicates that AtlasClear Holdings maintains a healthy pricing strategy and cost structure, allowing it to generate substantial profits from its revenue. This strong margin provides the company with flexibility to invest in growth initiatives and withstand potential market pressures.
AtlasClear's core business is its Financial Services segment, which encompasses its broker-dealer operations through Wilson-Davis. For the six-month period ended December 31, 2024, the Financial Services segment generated commissions revenue of $2.98 million, vetting fees of $723,000, and clearing fees of $1.83 million. These revenue streams are dependent on Wilson-Davis' ability to expand its customer base, increase transaction volumes, and manage its data processing and clearing costs effectively.
Liquidity
AtlasClear Holdings' liquidity position appears to be adequate, as evidenced by its current ratio of 0.80 and quick ratio of 0.80. While these ratios are slightly below 1.0, which is often considered the ideal threshold, they suggest that the company has sufficient short-term assets to cover its short-term liabilities. The company's ability to generate positive operating cash flow ($3.21 million) and free cash flow ($1.64 million) for the fiscal year 2024 further supports its liquidity position and indicates that it can fund its operations and investments without relying heavily on external financing.
As of December 31, 2024, the company had $6.88 million in cash and cash equivalents. Additionally, Wilson-Davis, AtlasClear's wholly-owned subsidiary, has a $10 million revolving line of credit with BMO Harris Bank N.A. that provides for interest at the bank's overnight rate plus 1.50% and is secured by Wilson-Davis' assets. Wilson-Davis did not draw on this line of credit during the six months ended December 31, 2024.
The negative debt-to-equity ratio of -0.33 suggests that AtlasClear Holdings has more equity than debt, which is generally considered a conservative capital structure. This financial position may provide the company with flexibility to take on additional debt if needed for future growth opportunities or to weather potential economic downturns.
Key Developments and Risks
On December 31, 2024, AtlasClear Holdings announced that it had secured an agreement from Hanire LLC to invest up to $45 million into the company through a combination of equity and convertible debt. This investment is expected to allow AtlasClear Holdings to restructure its current debt structure, increase the capital base of its Wilson-Davis subsidiary, and accelerate the expansion of its business lines.
AtlasClear has invested in developing its own proprietary trading platform and clearing capabilities through the acquisition of Pacsquare Technologies, LLC. As of December 31, 2024, AtlasClear has paid $1.93 million towards the acquisition of the AtlasClear Platform, which includes $1.15 million in shares of common stock issued to Pacsquare. The company expects to invest additional amounts on a module-by-module basis as the platform is developed and delivered. The successful implementation of the AtlasClear Platform is crucial for the company to provide cutting-edge technology-enabled financial services to its target client base of smaller financial services firms.
However, the company faces several risks that investors should consider. AtlasClear Holdings' operations are heavily dependent on Wilson-Davis, and any significant changes or disruptions to the broker-dealer's business could have a material impact on the overall company. Additionally, the company's reliance on a limited number of large customers for a significant portion of its revenue presents concentration risk.
Furthermore, the highly regulated nature of the financial services industry, particularly for broker-dealers, exposes AtlasClear Holdings to compliance and regulatory risks. The company must maintain its regulatory licenses and memberships, and any failure to do so could severely impact its operations.
In 2018, an extended hearing panel of FINRA's Department of Enforcement issued a decision ordering fines aggregating $1.47 million against Wilson-Davis for violations of short sales and anti-money laundering rules. Wilson-Davis appealed the decision to the National Adjudicatory Council, which in 2019 reduced the fines to an aggregate of $1.26 million. Wilson-Davis subsequently appealed the decision to the SEC. The SEC issued an opinion in 2023 sustaining FINRA's findings of violations against Wilson-Davis, but set aside the fines imposed and remanded the case to FINRA to reconsider the appropriate sanctions.
Outlook and Conclusion
AtlasClear Holdings' acquisition of Wilson-Davis and the AtlasClear Platform, coupled with the recent investment from Hanire LLC, positions the company to capitalize on the growing demand for innovative financial services solutions targeting the small and middle-market financial services firms. The company's focus on technology-enabled offerings and its ability to generate positive cash flow are encouraging signs for its future growth prospects.
AtlasClear Holdings plans to merge with Commercial Bancorp, a Wyoming-based commercial bank, to expand its capabilities in providing specialized clearing and banking services. This strategic move is expected to further enhance the company's ability to offer a comprehensive suite of financial services to its target market.
However, investors should closely monitor the company's ability to successfully integrate and scale its operations, as well as its effectiveness in navigating the regulatory landscape. The ongoing development and implementation of the AtlasClear Platform will be crucial for the company's long-term success and ability to differentiate itself in the market.
Overall, AtlasClear Holdings' unique value proposition and its efforts to revolutionize the financial sector for small institutions make it a compelling investment opportunity for those willing to accept the inherent risks. The company's focus on technology-enabled financial services, combined with its established broker-dealer operations through Wilson-Davis, provides a solid foundation for future growth. However, investors should remain vigilant of the regulatory challenges and the company's ability to execute its ambitious growth strategy in a highly competitive and regulated industry.